Minimum payment
The smallest amount you must pay on a credit card or line of credit by the due date to keep the account in good standing.
What it means
Card issuers set the minimum payment by a formula, often a small percentage of the balance plus that month’s interest and fees, or a flat dollar amount, whichever is higher. Paying at least the minimum on time avoids late fees and keeps the account current for credit reporting.
Paying only the minimum keeps the debt alive for a long time, because much of each payment goes to interest. Federal law requires statements to show how long it would take to pay off the balance with minimum payments only and how much interest that would cost. Paying more than the minimum, especially on the highest-rate balance, cuts both the time and the total interest.
Example
Suppose a card has a $3,000 balance at 24% APR, and the minimum is 1% of the balance plus interest. Monthly interest is about $60, so the minimum is about $90, and only $30 of it reduces the balance.
How it’s used
- Avoiding late fees in a tight month
- Reading the payoff disclosure on a card statement
- Planning a faster debt payoff strategy
Good to know
- Autopay set to the minimum is a useful safety net, with extra payments made on top.
Related terms
Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.